Transferring your pension

​It is possible to transfer your defined benefit (DB) pension.  Your exact options depend on whether you’re still paying in.

If you are still saving into your pension, then you can transfer your DB pension to

  • a DB arrangement with another provider, but you will need to opt-out of the Railways Pension Scheme (RPS)
  • a defined contribution (DC) arrangement with the RPS. Ours is known as the Industry-Wide Defined Contribution (IWDC) section
  • a defined contribution (DC) arrangement with another provider

If you are approaching retirement and are ready to access your benefits, your options are limited to either:

  • taking your DB pension or
  • transferring your DB pension out of the scheme and into a DC arrangement to access options such as a drawdown or annuity

You can choose to transfer all of your benefits or just any Additional Voluntary Contributions (AVCs), as long as it’s in line with the rules for your specific pension section.  Please see our read as you need guide here for more details. 

Transferring your pension does, however, carry significant risks. You should carefully compare the benefits of your current pension with any alternatives before making a decision.

Why you might consider transferring your pension

At face value, transferring from a DB scheme to a DC scheme may give you a broader choice regarding how, and when, to take your pension benefits.

In a DB scheme you can typically retire once you reach your Normal Retirement Age (NRA), which is usually between 60 and 65 years old, or from age 55 if you opt for Early Retirement. You can then:

  • take part of your pension benefits as a cash lump sum and the rest as regular pension payments
  • take your entire pension benefits as regular pension payments
  • take your entire pension benefits as a cash lump sum if the rules of your specific pension section allow

In a DC scheme you set a Target Retirement Age (TRA), usually above 55 years old (or 50 if you have a Protected Pension Age).  You can then:

  • leave your Personal Retirement Account (PRA) invested until you need it. This is allowed up to the age of 75
  • get a flexible income, taking it a bit at a time. This is known as drawdown 
  • get a regular, secure income, known as an annuity
  • take all of the money in your PRA as a cash lump sum.  We call this total encashment
  • take the money in your PRA as several smaller lump sums
  • mix and match your options with a combination of the above

This broader range of options for DC schemes was introduced as part of the Government’s pension freedoms in 2015.  Not all of these options are available with the RPS and would need to be facilitated by another provider if available as part of a transfer.

The risks of transferring your pension

Unlike a DB pension, the amount you receive from a DC scheme depends almost entirely on the performance of the funds your PRA is invested in.

This means if you transfer from a DB scheme to a DC scheme, you:

  • lose the income for life for you and your dependents  
  • may see the value of your pension pot go down, as well as up 
  • may have less income in retirement, particularly if the value of your pension pot falls
  • may have to pay management fees to your pension provider
  • may run out of money in your lifetime.

For these reasons, the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) both believe that it will be in most people’s best interests not to transfer their DB pension.  You can read more about when a transfer may or may not be suitable on the FCA’s website here.

The importance of getting advice

Transferring your pension is a big decision and one that would benefit from independent financial advice. 

You might have to do this by law if the value of your DB benefits is more than £30,000 and you are looking to transfer to a Defined Contribution/Personal Pension Arrangement.

But it could still be beneficial to obtain advice even if you pot is worth less than that.

The same applies if you have a DC pension pot (which contains a guarantee of the benefit you may get – known as safeguarded benefits).

Liverpool Victoria (LV) has been chosen as the official partner to give RPS members access to financial advice. LV can be contacted on 0800 023 4187.  

You are still free to choose your own Independent Financial Adviser (IFA). You can find an IFA in your area at unbiased.co.uk

Watch out for scams

Pension transfers are one of the main routes being used by pension scammers.

Their tactics include:

  • contacting people out of the blue wanting to discuss their pension
  • offering ‘free pension reviews’
  • promising better returns on your savings
  • offering upfront cash or other incentives to transfer  

If you fall prey to these fraudsters, you could lose your entire pension savings and be asked to pay a large tax bill too. 

You can find out more on our scams page here or via The Pension Regulator’s (TPR) website here.  

How to make the transfer

We recommend that you read and consider all available guidance before proceeding with a pension transfer.

If you are considering transferring your pension then you may benefit from financial advice. You might also have to do this by law if the value of your DB benefits is more than £30,000 and you are looking to transfer to a Defined Contribution/Personal Pension Arrangement.

You can read more about getting advice here or check the FCA website for more details

If you do decide to transfer out of your DB pension scheme, then the process will be as follows:

  1. Tell your employer that you want to opt out of your DB pension scheme.  This is important because a transfer can only be made once you have opted out and ‘preserved’ your benefits. It cannot happen if you are still actively paying in.
  2. Your employer will confirm your request to opt out with the Scheme administrator, RPMI.
  3. You will receive a preserved statement, showing the current value of your pension benefits. The Trustee will convert the benefits you’ve built up into a cash sum. This is known as the ‘transfer value’ or sometimes the ‘cash-equivalent transfer value’ or ‘CETV. This reflects the value placed on your benefits that would ultimately be transferred to a new arrangement.
  4. You decide on a new arrangement, to access options such as annuity or drawdown, and put that in place by applying directly to your chosen provider.
  5. Once the new arrangement is in place you apply to transfer out by returning all the necessary paperwork to RPMI.
  6. RPMI will then disinvest your pension and transfer the funds directly to your new provider. Once complete, this transfer is permanent and cannot be reversed at a later date.